The Euribor rallies in January for the first time in 14 months.

The Euribor at 12 months, the main reference for the calculation of mortgages in Spain, will finish January at 0,57%, after registering a slight increase, the first one since October 2011. In spite of this increase, those which need to revise their mortgage annually or biannually will continue benefiting from a lower Euribor than last year or than the last semester.(…)

Source: Idealista

Romana will outsource the design of the new business plan for Sareb.

The new business plan of the bad bank will be outsourced. Belen Romana, president of Sareb has decided to outsource the design of the new strategic lines, according to sources close to the bad bank.

The script chosen six months ago for the first business model for Sareb, which was drafted with the assessment of Alvarez & Marsal, repeats itself. But at that time the bank did not have its own team and it depended on the Restructuring Fund and on external companies. Now with an appointed executive team, it was expected that Sareb would prepare its own business plan.

Romana has offered this contract to the main advice companies, although KPMG has a head-start due to its real estate and financial experience. The consulting company declined any comments. PwC also was a strong candidate. This agency has already played a very active role in the design of the bad bank, along with Alvarez&Marsal, Cuatrecasas and Nomura. The fact that it has just obtained Sareb´s audit could hinder the company in this new tender.

The business plan has been one of the main conflict points Romana has encountered since her arrival to Sareb. The president of the company and, especially, the general director, Walter de Luna, did not share the guidelines of the previous plan, and were looking for one which would adjust to their forecast. This is why the sector finds it confusing that they hire a third party to carry out this task.

This option will provide credibility among foreign investors, who are still negotiating their participation in the company. It will also liberate the few employees Sareb has so that they can concentrate on classifying the assets entering the company and designing credit and properties packages to be sold to investors.

There are certain shareholders and potential investors who are confused by the decision of drafting this new business plan. Especially current shareholders, who deposited capital at the end of December based on a plan which guaranteed an annual profit of 13-14% during the 15 years of operations of Sareb.

Financial sources explain that Romana believes that the current business plan is rather optimistic in reference to the forecast in real estate prices.

Once this contract is solved, all consulting agencies hope that Sareb will continue offering work within the sector. The real estate assets and the credits which were transferred by the nationalized banks still need to be revalued. Consulting agencies hope that Romana will fragment all assets in portfolios, creating work teams afterwards. The valuation of these assets is basic to determine the level of gains or losses which can be obtained by the bad bank in future.

On the other hand, Iberdrola is detailing its incorporation to Sareb in the capital extension which will take place at the end of February, Alicia Crespo informs. The company is trying to attract the first shareholder which is not related to the financial sector.

Source: Expansión

The reform of the Socimi and the dilemma of the alternative stock exchange market (MAB).

The difficult access of individuals to financing for the acquisition of properties, the huge real estate stock in Spain and the tendency to comparison with the European standards (where the rental rate stands at 30% opposite to the current 17% in Spain) has made the government realize that new norms which will promote the rental market in Spain are necessary.

Among these new norms, the Tax Measures Law from 27th December, has modified the norms on the listed limited companies which invest in the real estate market (Socimi) in order to reactivate the Spanish market and try to match them with the Real Estate Investment Trusts (REIT) or with other examples of collective investment in properties, used in other countries with a huge success.

The main novelties of this reform are centered in the tax area (they will now pay 0% in company tax instead of the previous 19%) and the reduction of formal requirements (their minimum capital will decrease from 15 to 5 million Euros; they will be able to invest in a single real estate asset; the limit of indebtness is eliminated and there is the possibility of listing in multilateral negotiation systems, such as the alternative stock-exchange market.

It is true that the scarce use of the Socimi up to now, was its tax inefficiency, as well as the costly and rigid requirements (the had to be listed in secondary markets – Stock Exchange). But it is also true that the success of this reform will be in the hands of the MAB, a self regulated organization, supervised by the National Share Market Commission, and it will also depend on the regulation developed in reference to the Socimi.

Therefore, the regulations of MAB, will establish the rules of the game in matters as important as the requirements and obligations to access the market and of information to investors (need of valuations or assessments and its recurrence) and, above all, the requirements of liquidity and free float of their shareholders (this is, the percentage of shares in circulation – in the hands of minor shareholders). This positioning is essential to guarantee the feasibility of Socimi, first, as an investment channel which allows individual investors or institutions to participate in the profits obtained in the rental of a certain real estate portfolio or even a single property.

This would allow financial institutions and other great real estate operators to use the Socimi as a tax efficient channel to obtain funds, to develop new projects, to put into circulation different property portfolios and diversify risks by sectors or by type of property (residential, office, hotels, sanitary sectors), with the main objective of appealing to international investors.

On the other hand Socimi could also be used by small real estate operators (family offices, small business and family groups) as channels of restructuring and tax efficiency which will allow them to obtain liquidity and to professionalize and provide more transparency to its structure so as to be more competitive opposite to the other operators within the sector. The efficiency of Socimi for these small operators will be even more linked to the normative development carried out by MAB in order to estimate costs, value its tax efficiency and, mainly, have the assurance that all minimum requirements of free float will not prevent them from maintaining a certain control on the shareholders, without diluting excessively their participation in it.

This is why MAB is facing the dilemma of creating an appropriate and flexible regulation in order to comply with all liquidity and dispersion requirements of a multilateral negotiation system (similar to the one followed by a segment of growing companies, which requires a volume of shares in circulation of two million Euros) and as well, cover the needs demanded by the market so as to accommodate small real estate operators (in line with the demands of the current negotiation segment of the Sicav, with no requirements of free float other than the need of having a certain number of shareholders).

Source: Cinco Días

The easier assignment in payment.

The Government´s mortgage reform to deflate the bubble of “abusive” mortgages is taking shape. The Ministry of Economy would like to underpin protection mechanisms for debtors who risk to be excluded socially. It intends to improve the draft which will be debated tomorrow in Parliament. But the Ministry also intends to “make the necessary requirements to access the Code of Good Practices more flexible”. That is, to be able to benefit from a debt restructuring or an assignment in payment (to cancel the debt by handing in the property).

Sources close to the Ministry of Economy assured that the Government is “ready to extend the scope of the code, so as to make it more accessible and to reform the conditions to access the assignment in payment”. The income threshold to access that Code will therefore be increased.

Nowadays, to benefit from this code the maximum level of income per family is 16.000 Euros per year, and all members of the family must be unemployed.

But these rigid requirements caused only 568 petitions during the first quarter of the Code´s existence, half of which were processed. Only 44 debt restructuring process and assignments in payment were signed during that period.

The intention now is to help citizens to avoid the foreclosure or to liquidate their debt with the handing in of the keys. This would converge with Royal Decree on evictions passed in November, which offers advantages (a moratorium of two years) for those who earn less than 19000 Euros per year, whether they are unemployed or not, if certain special social circumstances concur (families with children aged 3 or less, or with a handicapped member, among others).

The income threshold established at that time (three times the Public Income Indicator) is equivalent to 80% of the average salary, and therefore it would be more real to apply it to mortgage debtors who risk to be socially excluded.

The Government would also like the banks to warn citizens that they can benefit from the Code of Good Practice. (…)

Nevertheless, financial institutions are putting a stop to evictions of late payers. Not only those who comply with the requirements to benefit of the two year moratorium, but most of them.

The sector awaits the decision of the European Court of Justice, who could determine that the Spanish norms regulating evictions could be against the European norms for consumer protection against abusive clauses in mortgages.(…)

The Government is preparing more measures to protect debtors. They intend to reform the Mortgage Law, with a drastic decrease in interests for late payment in mortgages on usual residences, which cannot be higher than the legal money interest (currently 4%) plus a surcharge of two percentage points. A maximum of 6%, opposite to the interests being charged right now, which range from 18% to 29%, according to Adicae.(…)

Source: Expansión

Bankia speeds up the sale of properties and plot exchanged for non-payment.

Bankia Habitat, the real estate company within the nationalized group BFA-Bankia, has sold more than 14600 properties in 2012, disinvestments which include plots, developments and developers´ assumptions, obtaining an income of more than 1600 million Euros, according to a statement made by the company. Within this broad package of properties, it has speeded up the sale of awarded properties, which are the ones it retained in exchange for unpaid mortgages.

The assumptions from developers and the disinvestment in single assets such as plots and developments reached 9000 units, while Bankia got rid of more than 5600 properties coming from awarded assets. Sources within the sector explained that this disinvestment figure is the highest within the nationalized institutions last year. The pace of disinvestment of awarded properties increased by 23,6%, with a higher increase at the end of the year, which allowed the bank to obtain 550 million Euros, 18,9% more than in 2011.

(…) BFA-Bankia more than doubled sales in December, in comparison with the average sales of previous months. During the last month of the year, it registered a total of 1100 sales of properties, 70% more than in November.

The assumption of properties from developers reached 2300 units in December, five times more than in previous months y doubling those in July, the second best month of 2012, when more than 900 properties were assumed. The institution also registered a disinvestment in buildings for 22 million Euros and in plots and single assets for more than 120 million Euros.

The nationalized institution points out that it launched several commercial campaigns in 2012, in summer and in autumn, with price reductions between 40% and 60%.

Bankia Habitat organized in November an unprecedented auction with more than 1000 properties of new construction, with the addition of properties from developers. The company sold assets for more than 13 million Euros through auctions.

In these operations, many customers bided directly through the Internet, through and through Reser, the auction platform participated mainly by Bankia. The bank offers those clients who are interested in awarded assets special financing conditions through a mortgage loan financing 100% of the investment with a limit of 80% of the assessment value, at Euribor plus a differential of 0,90 points. (…)

Source: El País

Romana´s new business plan creates internal turmoil at Sareb.

The bad bank starts to face its first internal tensions. Sareb, the company holding all damaged assets from banks and one of the key players in the recovery of the investors´ trust towards Spain and its financial system, is facing discrepancies two months after it was formally constituted, according to sources close to Sareb.

On one side, the new business plan being prepared by its president, Belén Romana and the managing team she is creating. On the other side, the rejection of the shareholding banks to accept certain requirements established by foreign funds to enter the capital.

The board of Sareb was summoned yesterday at 9.30 pm in order to look into these matters, as well as study the absorption of the assets from group 2 banks (BMN, Liberbank, Banco Caja España Duero and Caja 3).

The managing team would be thinking of modifying the initial plan in depth, according to those same sources. This plan, necessary for the formal launching of Sareb, was designed two months ago by external consultants, the Ministry of Economy, the Restructuring Fund (Frob) and the Bank of Spain. It was presented to the current shareholders and should be approved by the board, once the company and its shareholders were organized.

Several players are totally against the modification of the business plan. They consider that the change implies certain risks, among them, a loss of credibility.

The new managers are thinking of modifying the forecasts on the evolution of the real estate market in Spain (towards worse scenarios). The original project was based on the forecast made in the stress test for banks carried out by Oliver Wyman last summer. To modify these could generate doubts on the solvency test and the capital needs of Spanish banks.

Another matter which could be revised would be the disinvestment plan on the assets and the fund circulation model. The need to slow down the sale of those assets and the repayment periods for the guaranteed debt issued by Sareb would be studied. This debt is used by institutions to obtain liquidity from the ECB, who stands for the quick repayment of these titles.

The modification could mean receiving again the green light from Eurostat to the business plan. This is a requirement in order to prevent the financial burden in Sareb from consolidating in the public accounts.

The same sources explain that these changes are cooling down the interest from investors who could become shareholders when the company extends its capital in 1100 million Euros in order to assume the assets from Group 2.

According to the planned calendar, its credits and properties (around 16000 million Euros) will be integrated on the 28th February. The extension should therefore be approved before that date.

(…) “Sareb´s managers are currently working on the revision and updating of the business plan, which will be ratified by the managing directors and by the Troika”, Sareb indicated. The business plan has been adjusted based on the evolution of the portfolio. All details on the assets which will be received from Group 2 are available, as well as the balance situation up to 2012.

There is also a division among shareholders in reference to the incentives demanded by foreign funds in order to join Sareb.

The Frob, aware of the impact on credibility this foreign participation would have, is for the acceptance of their conditions. On the other hands, banks, savings banks and insurance companies are against it.

(…)The international funds are interested in investing only if they can have a vote on the management of Sareb. They also demand a preferential purchase option on the most liquid and with the highest quality assets of the bad bank.

The shareholding institutions are against granting incentives which they themselves have not had, as well as taking any decisions which could affect their own interests in the real estate market. One of the great risks of the entry of banks within Sareb is confirmed: the conflict of interest. (…)

Source: Expansión

The closure of branches creates conflicts between banks and big fortunes.

New source of conflict for banks: the frenzy of closure of branches is creating problems with big customers of private banking, threatening to turn into a new headache for commercial relations of banks.

The origin of the conflict are the sale & lease back agreements, which banks and savings banks signed at the beginning of the crisis, between 2007 and 2008. They sold nearly 4400 branches to funds and big fortunes with the commitment of becoming a tenant and paying a fair annual rent for periods of around ten years. With these agreements, the institution obtained liquidity in a complicated moment in the market; while customers acquired a real estate asset with an assured profitability.

What they were not counting on was the worsening of the crisis which has obliged institutions to close more than 7000 branches out of the 46000 which existed in 2008, and with plans to continue reducing the number. Different studies establish that there is still room for a reduction of 15%-20%.

Up to now most complicated situations have been solved amicably. But there are already cases where banks have threatened to present the case to court.

The worse situation can be found in those branches where the institution is a tenant, without a previous sale agreement. There are already court decisions which allow banks and savings banks to cancel the leases paying one month of rent per pending year.

Things do not look so somber in the sale & lease back agreements. “For the moment banks do not dare go to court on those branches which were sold, as it is clear that the object of the sale was not the property itself but the lease agreement, Jose Carlos Torres explains, director of Zaphir Asset Management, real estate agency for Aguirre Newman.

Nevertheless, Guillermo Santos, strategy director of iCapital, thinks that the conflicts between investors and institutions will increase. Negotiations with these customers are being resolved as follows, Santos explains.

  1. Profitability: Banks are trying to bargain down the signed agreements. Institutions agreed initially to pay a rent/coupon of between 5% and 10%. This alternative only intends to reduce fixed costs.
  2. Change of branch: Another possibility would be for the bank to offer a change of branch to the investor. This modification (included in many agreements) may be for worse in many occasions, as the new branch is located in a worse area than the original one.
  3. In some cases, institutions are offering to continue paying the rent even though they leave the branch or to look for a new tenant (…).These are exceptional solutions which some institutions are turning to so as to maintain a good relation with their VIP customers.

Apart from the closure of branches, “most of the branches sold in 2008 and 2009 have an overvalued price, which was inflated by the banks so as to obtain gains with each sale”, sources from an important family office are pointing out. (…)

Source: Expansión

The granting of mortgages drops by 30% confirming more properties currently being acquired in cash.

The number of mortgages granted during the month of November in Spain dropped by 31,6% annually, down to 19.115 units. This figure is similar to the previous month´s and means remaining at a historic minimum level, according to the National Institute for Statistics (NIS). This figure refers to dates in which the sale of properties increased, so this confirms the idea that more and more properties are being paid for in cash.

There was a time when the number of monthly mortgages exceeded the number of property sales. This was due to the fact that the mortgage activity was even higher than the purchase one, as there were many mortgage operations which were not linked to a purchase (refinancing, for example).

Nevertheless, for the last few months, the figures supplied by the NIS show a change in trend. According to the NIS figures, the number of sales was 25% higher than the number of mortgages. In 2007 the situation was in reverse, as the number of mortgages was 50% higher than the number of sales.

The fall in property prices, linked to the increase in mortgage differentials, allows the purchase of properties in cash. This is happening mainly within the cheap properties, where buyers can face a purchase without a mortgage, whose average interest rate increased up to 4,39% in November. This has also allowed that the average amount per mortgage is declining at a slower pace than the price of properties. The average mortgage decreased by 4% annually, while property prices are decreasing more than 10%. (…)

Source: Idealista

Radical change of the rules of the game for raters.

The second modification on the regulations of the mortgage market by the Ministry of Economy so as to protect debtors changes the rules of the game for raters in the foreclosure procedures.

First, in those procedures where a bid takes place, banks will be obliged to accept the valuation presented by the debtor. (…)

So, the property will be auctioned based on the value established by the appraisal provided by the debtor, not the bank. This will prevent the institutions from presenting the famous “second assessment”, which reduces significantly the value of the property so as to take it over at a lower price or to obtain more in the auction. This is always a disadvantage for the borrower, who cancels a smaller percentage of the debt.

On the other side, “it is also prohibited for financial institutions to acquire, directly or indirectly a significant participation in the rating companies.”

This means that banks will not be able to acquire more than 10% of a rating company. Up to now the maximum participation was of 25%. The intention is to “reinforce the independence of the rating companies opposite to the institutions.” It is worth mentioning that the financial sector has at one point controlled more than half of the rating companies.

And those rating companies which obtain at least 10% of their total income from banks or are owned by a financial institution should have “the necessary mechanics to favor their independence and thus avoid any conflicts of interest. These mechanics should include at least “an internal regulation of performance which establishes those incompatibilities between executives and administrators”. The Banks of Spain will revise these transparency measures and will be able to establish minimum requirements.

This modification also enables the Board of Consumers and Users to demand the Bank of Spain to initiate disciplinary proceedings against a rating company. Up to now only administrative institutions could demand this. Finally infractions from rating companies are increased, being some of them “very serious”.

Source: Expansión

The Government will legislate to avoid the mortgage from exceeding the retirement age of the debtor.

The mortgage reform prepared by the Ministry of Economy hides a huge novelty. The department headed by Luis de Guindos intends that the Spaniards should not be able to get into debt when buying their main residence for a period of time exceeding the end of their working life. 65 years, retirement age in Spain (from 2027, it will be 67 years) will be the impassable border in mortgage loans, so as to end the excess indebtness of citizens, after the excesses in the real estate boom.

This governmental reform which will modify the Law regulating the mortgage market will add a paragraph to article 5, stipulating that “the repayment period of the loan or the credit guaranteed by a property, when financing the acquisition or restoration of a usual residence, will not exceed the legal retirement age of the debtor”.

The Government has not yet decided to apply this “proposal”, which it considers “important”, as it thinks that it should be “evaluated carefully, in view of the potential effects it could have on the access to properties of citizens with less accumulated savings”, (…).

This is a petition which lends a hand to PSOE, who in its proposal of reform of the mortgage law demanded that mortgages should have a repayment period longer than 30 years. It is important that the last installment should not exceed the retirement age and the income decreases.

The vice-president of the government already pointed out last November that one of the main objectives of the government was to “establish credit limits to usual residences acquisitions so as to avoid an excess indebtness.

The average repayment period for mortgages is currently 23,3 years, according to the Bank of Spain. This shows that there are a high percentage of loans with a longer duration than 30 years, even though there are no official records.

But during the real estate bubble there were plenty of mortgages with repayment periods of 40 and 45 years with the average period nearing 30 years. “It has been observed that the delays in payment are more frequent when the repayment periods are longer”, Julio Rodriguez, former president of Banco Hipotecario, points out.

“ I think that limiting the repayment period of mortgages to the retirement age would be reasonable, as it seems normal that the loan is referred to the active life of the borrower, as after retirement the income decreases substancially”, Rodriguez adds.

But could this measure – if applied – affect those citizens who decide to buy a property when nearing their retirement age? “No, because right now banks are not lending at 30 years to someone over 40 years of age, but at a number of years similar to the active life remaining to that person”, Rodriguez adds.

Source: Expansión